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Higher Mortgage Rates Spurred an Increase in Home Sales

Higher Mortgage Rates Spurred an Increase in Home Sales

Does this just blow your mind?

How is it that we have had historically low rates and have not been able to get buyers off the fence and yet now that they are creeping back up they are beginning to come out of the wood work?

Is it that spring is on the way?

Is it that people are snowed in and looking for something to do? So let’s just go online to look for a new house?

Is it because they think housing has hit the bottom?

Do people purchase more when they think that prices are going up?

Check out this information from CNN Money.

Higher Mortgage Rates Spurred an Increase in Home Sales

The recent surge in mortgage rates, by all rational calculations, should have made America’s already troubled housing market worse off. Instead, higher borrowing costs modestly boosted homes sales in November. Before slipping down slightly this week, mortgage rates had risen for several weeks in a row as yields on 10-year Treasury bills, which largely influence the cost of mortgages, rose. The rate increases were some of the highest seen since June of this year.

Intuitively, it would make sense that higher borrowing costs would discourage potential homebuyers. And vice versa. But quite the opposite has happened. Before the recent surge, mortgage rates had fallen to historic lows but failed to spur much refinancing or home purchases as virtually all major banks tightened lending standards. When mortgage rates started rising recently, potential homebuyers waiting in the sidelines took notice.

In November, the share of home purchases by first-time buyers surged to 37.2% from 34.4% the previous month, according to a monthly survey by Campbell/Inside Mortgage Finance, which tracks mortgage and housing industry trends. “That’s extremely significant,” says Tom Popik, the survey’s research director. Since the survey launched in 2009, there’s typically only been a one-percentage point change, if any at all, among first-time homebuyers.

The higher rates seem to have served as a warning shot, drawing in buyers eager to lock in historically low rates before they edge any higher. In a sense, they were waiting for an uptick to prove that rates had gone as far down as possible, before deciding to buy. Unlike current homeowners, first timers are positioned well to respond quickly to fluctuations in mortgage rates.

Popik says it’s unlikely the rise in rates will spur many more home purchases. After a while, potential homebuyers will again think mortgages are becoming too expensive. For now though, rising rates have brought a boost, however small, to the struggling housing market. November sales of new homes rose 5.5% to a seasonally adjusted annual rate of 290,000 units, the Commerce Department reported December 15.

Naturally, in response to the uptick in home sales and increase in demand for lending, mortgage rates have most recently . . . fallen again. Somewhere, that makes perfect sense.